SHFE aluminium to continue to fluctuate wildly at highs on continued destocking

SHANGHAI, Apr 20 (SMM)—The most-traded SHFE 2105 aluminium contract hit a 10-year high of 18,460 yuan/mt last week, with the spread between the highest and lowest price for the week as large as 1,195 yuan/mt.

The contract closed the week at 18,005 yuan/mt, up 520 yuan/mt or 2.97%.

The surge in prices was mainly due to market rumours that aluminium smelters in Xinjiang would be subject to carbon-neutrality production reductions similar to those in the Inner Mongolia and the fact that social inventories fell sharply, which attracted longs, with open interest of SHFE aluminium index up 94,000 lots.

Positive US economic data and employment data and persistently high number of new COVID-19 infections kept the US dollar index in check. The US dollar index dropped on Thursday and Friday, allowing LME aluminium to strengthen. As of Friday afternoon, LME aluminium traded at $2,324/mt, up $55/mt or or 2.42% from the beginning of the week, with the weekly high at $2,359/mt.

SHFE 2105 aluminium contract is expected to move between 17,800-18,600 yuan/mt this week as the rumoured output cuts in Xinjiang may not be implemented in the short term while social inventories continue to decline on strong demand.

LME aluminium is likely to follow SHFE aluminium up to $2,270-2,370/mt.

Spot discounts of 0-10 yuan/mt and premiums of 0-40 yuan/mt are expected over the SHFE front-month aluminium contract.

Investment advice: Longs should take profits.